By William Gilmartin
The crime of money laundering continues to be a growing area of concern in the United States. Therefore, law enforcement agencies and the financial sector devote considerable time and resources to combating these illegal financial activities. While money laundering is most often associated with banks and other financial institutions, real estate transactions can also provide cover for various money laundering schemes.
Money laundering is the process criminals use to disguise the illegal origin of their funds. Certain criminal activities generate substantial proceeds. Legitimizing, or “laundering” this money through the financial system, is a critical component for criminals to hide their activities and not draw attention to their illegally derived proceeds. The actual process of money laundering is a three-step process, and a real estate transaction can be used in any one of the three stages.
In February 2012, the U.S. Department of the Treasury (Treasury) issued regulations for non-bank financial institutions requiring certain plans and documentation for anti-money laundering actions. At that time, Treasury exempted the real estate industry from the regulations because most cash involved in real estate transactions is regulated through other entities. However, Treasury said it would work with the real estate industry to develop educational materials and to learn more about the industry for possible future regulation.
To increase real estate professionals’ awareness, knowledge and understanding of the potential money laundering risks surrounding real estate and enable them to identify practical measures to mitigate the risks, the National Association of REALTORS® (NAR), in collaboration with the Treasury, developed a fact sheet titled “Anti-Money Laundering Guidelines for Real Estate Professionals.”
This fact sheet and suggested voluntary guidelines provide tips to enable real estate agents to be sensitive to suspicious factors that may signal a money laundering effort. In essence, the advice is to know your client as well as the most common “red flags” indicating a questionable source of funds. NAR is offering this fact sheet and suggested guidelines as part of an industry-wide effort to educate real estate professionals on the dangers of money laundering, common sense tips to be on the look-out for money laundering transactions and what steps to take if you become suspicious or if you are asked to handle certain combinations of cash and cash instruments. This fact sheet and suggested guidelines, along with a podcast interview with a Treasury official, is available at www.realtor.org/moneylaundering.
While the illicit financial risk for real estate agents is often mitigated by the involvement of financial institutions already subject to strict anti-money laundering/counter-terrorist financing laws, the use of real estate in money laundering schemes continues to be an area of concern to the government. Adherence to these voluntary guidelines will help the real estate agent identify potential money laundering risks. These voluntary guidelines will also help real estate agents be effective partners with enforcement agencies in detecting and addressing the use of real estate in illegal financing activities.
This column is brought to you by the NAR Real Estate Services group.
William Gilmartin is the senior policy advisor, Industry Relations & Outreach, for the National Association of REALTORS®.
For more information, visit www.realtor.org.
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